Assume you are a mid-level executive at Automotive Solutions Inc., and you have been assigned to analyze the company’s financial statements for 20Y7 and 20Y8 and prepare a report for upper-level organizational leaders.
The following tables show the comparative financial statements for Automotive Solutions Inc. The market price of Automotive Solutions Inc. common stock was $119 on December 31, 20Y8. The market price of Automotive Solutions Inc. common stock was $103 on December 31, 20Y7.
AUTOMOTIVE SOLUTIONS INC.
Comparative Statement of Stockholders’ Equity
For the Years Ended December 31, 20Y8 and 20Y7
20Y8 20Y7
Preferred stock Common stock Retained Earnings Preferred stock Common stock Retained Earnings
Balances, Jan. 1 $500,000 $500,000 $5,375,000 $500,000 $500,000 $4,545,000
Net income 900,000 925,000
Dividends:
Preferred stock (45,000) (45,000)
Common stock _______ _______ (50,000) ________ _______ (50,000)
Balances, Dec. 31 $500,000 $500,000 $6,180,000 $500,000 $500,000 $5,375,000

AUTOMOTIVE SOLUTIONS INC.
Comparative Income Statement
For the Years Ended December 31, 2018 and 20Y7
20Y8 20Y7
Sales $10,000,000 $ 9,400,000
Cost of goods sold (5,350,000) 4,950,000)
Gross profit $ 4,650,000 $ 4,450,000
Selling expenses $(2,000,000) $(1,880,000)
Administrative expenses (1,500,000) (1,410,000)
Total operating expenses $ (3,500,000) $(3,290,000)
Operating income $ 1,150,000 $ 1,160,000
Other revenue and expense:
Other revenue 150,000 140,000
Other expense (interest) (170,000) (150,000)
Income before income tax $ 1,130,000 $ 1,150,000
Income tax expense (230,000) (225,000)
Net income $ 900,000 $ 925,000
AUTOMOTIVE SOLUTIONS INC.
Comparative Balance Sheet
December 31, 20Y8 and 20Y7

Dec. 31, 20Y8 Dec. 31, 20Y7
Assets
Current assets:
Cash $ 500,000 $ 400,000
Marketable securities 1,010,000 1,000,000
Accounts receivable (net) 740,000 510,000
Inventories 1,190,000 950,000
Prepaid expenses 2,50,000 229,000
Total current assets $3,690,000 $3,089,000
Long-term investments 2,350,000 2,300,000
Property, plant, and equipment (net) 3,740,000 3,366,000
Total assets $9,780,000 $8,755,000
Liabilities
Current liabilities $ 900,000 $ 880,000
Long-term liabilities:
Mortgage note payable, 10% $ 200,000 $ 0
Bonds payable, 10% 1,500,000 1,500,000
Total long-term liabilities $1,700,000 $1,500,000
Total liabilities $2,600,000 $2,380,000
Stockholders’ Equity
Preferred $0.90 stock, $10 par $ 500,000 $ 500,000
Common stock, $5 par 500,000 500,000
Retained earnings 6,180,000 5,375,500
Total stockholders’ equity $7,180,000 $6,375,000
Total liabilities and stockholders’ equity $9,780,000 $8,755,000

In your report to upper management, analyze the company’s financial statements for 20Y7 and 20Y8:
• Discuss the purpose of the report and the role of accounting in business.
o What are the two major objectives of accounting and how are they achieved?
o What kind of information do these financial statements provide to internal stakeholders, such as organizational leaders within the company, and to external stakeholders, such as lenders and current or potential investors?
o How do internal and external stakeholders use financial accounting information?